Cramer: Why Street Switched Into Defensive Stocks

The market’s once-dejected stocks finally got their due on Friday, Cramer told viewers, though not for the most obvious reasons. So forget the usual data points – there was a different catalyst at work.

Abbott Labs , Baxter International , Clorox , Verizon and AT&T all were up big today, as a massive shift back into classic defensive plays pushed these stocks higher. Yes, Clorox raised its dividend, Abbott introduced its 342nd straight payout, and J.P. Morgan increased its earnings estimates for Baxter, but that’s not why investors piled in.

It is oil’s rise that caused them to switch their stance. With crude fetching over $72 a barrel, much of Wall Street is expecting consumers to start cutting back, as they did when gas prices reached $4.50 a gallon. Also, we haven’t yet received any legitimate good news, something solid on which to stand. Without it, the markets can’t sustain the big moves they had over the past few months. As a result, investors are taking profits in the oils, minerals and tech and buying defensive stocks instead.

Consider a comment this week from Home Depot’s management, who referred to the present environment as merely “less bad,” Cramer said. HD raised its guidance, but only because of cost cuts – not increasing sales. If stores were seeing more business, that might indicate an improving economy. Management didn’t say that, though. Their focus was on savings. Could that mean they predict an extended recession?

Cramer’s good news is that he doesn’t expect this sector rotation to last long. In fact, money should start flowing back into tech and the other loved sectors as soon as Monday. Both mutual funds and retail investors will open their coffers and buy, he said, and those defensive names – Abbot, Baxter, Clorox – will be dejected once again.